The income statement for Huerra Company for last year is provided below: Sales Less: Variable expenses Total $11,200,000 5,600,000 Unit $224.00 112.00 Contribution margin Less: Fixed expense 5,600,000 2,800,000 112.00 56.00 Net operating income Less: Income taxes @ 30% 2,800,000 840,000 56.00 16.80 Net income $ 1,960,000 $39.20 The company had average operating assets of $7,000,000 during the year. Required: 1. Compute the company's ROI for the period using the ROI formula stated in terms of margin and turnover. (Round intermediate calculation to 2 decimal places. Enter your percentage answer rounded to 2 decimal places (i.e., 0.1234 should be entered as 12.34).) ROI % 2. Consider each of the following questions separately and then compute the new ROI figure. Indicate whether the ROI will increase, decrease, or remain unchanged as a result of the events described. a. By using JIT, the company is able to reduce the average level of inventory by $500,000. (The released funds are used to pay off short-term creditors.) (Round intermediate calculation to 2 decimal places. Enter your percentage answer rounded to 2 decimal places (i.e., 0.1234 should be entered as 12.34).) ROI b. The company achieves a savings of $11 per unit by using cheaper materials. (Round intermediate and final answer to 2 decimal places.) ROI c. The company issues bonds and uses the proceeds to purchase machinery and equipment, thus increasing the average assets by $600,000. Interest on the bonds is $60,000 per year. Sales remain unchanged. The new more efficient equipment reduces fixed production costs by $30,000 per year. (Round intermediate and final answer to 2 decimal places.) ROI % d. As a result of a more intense effort by the sales staff, sales are increased by 10%; operating assets remain unchanged. (Round intermediate and final answer to 2 decimal places.) ROI e. Obsolete items of inventory carried on the records at a cost of $200,000 are scrapped and sold for 20% of the book value. (Use full amount of scrap while calculating average operating assets. Round intermediate calculation to 2 decimal places. Enter your percentage answer rounded to 2 decimal places (.e., 0.1234 should be entered as 12.34).) ROI % f. The company uses $200,000 in cash (received on accounts receivable) to repurchase and retire some of its common shares. The net effect of this transaction is a $200,000 change in average operating assets. (Use full amount of scrap while calculating average operating assets. Round intermediate calculation to 2 decimal places. Enter your percentage answer rounded to 2 decimal places (i.e., 0.1234 should be entered as 12.34).) ROI g. The company pays a cash dividend to its shareholders, which results in a $200,000 change in average operating assets. (Round intermediate calculation to 2 decimal places. Enter your percentage answer rounded to 2 decimal places (i.e., 0.1234 should be entered as 12.34).) ROI % |